Synopsys SNPS and Applied Digital APLD are two of the biggest beneficiaries of surging AI capital expenditure by global investors in the semiconductor industry. All the layers of the semiconductor industry, including electronic and design automation, integrated device manufacturing, chip fabrication, fabless chip designers, packaging and assembly equipment players are gaining from the AI trend. These companies are not only growing on the back of their products but are also cashing in on the sale of intellectual property and patents of their technology.
Although Synopsys and Applied Digital serve separate verticals of the semiconductor industry, the AI tailwind is helping both companies grow. APLD serves as an infrastructure provider to new-age AI and high performance computing companies and builds, owns and operates large-scale data centers for them. Synopsys, on the other hand, automates engineering workflows, improves customer productivity and gains from the system-level and semiconductor R&D spending and robust AI compute design activity.
Given these dynamics, let's discuss the fundamentals of these two giants and pick the one that has more upside in the AI landscape.
The Case for Synopsys Stock
Synopsys is gaining from a multi-trillion-dollar AI infrastructure buildout as it leverages its decades of deep engineering expertise, proprietary codebases and solvers, silicon-proven design technologies and foundry co-optimization capabilities. The company has been able to provide its customers with up to 50% faster knowledge assistance, 70% faster workflow assistance and 5x faster formal testbench generation.
SNPS is using AI in two ways, which include making chip design faster and better and preparing for a broader shift where AI becomes a more autonomous workflow layer across design, verification and simulation. Synopsys provides DSO.ai and VSO.ai. DSO.ai is an optimization engine focused on tape-outs, while VSO.ai is being used more deeply in SoC blocks and verification workflows.
Synopsys’ customers have used DSO.ai to optimize more than 700 cumulative tape-outs, and VSO.ai has been deployed in up to 90% of SoC blocks on some chips, per its most recent earnings call. Synopsys has implemented AI in its product layer, which it calls XSO.ai, that enables its customers to train AI on their own workflow to create knowledge-assistant tools.
Another major contributor to Synopsys’ top line is its Design IP business. Over the years, Synopsys has heavily invested in developing and acquiring intellectual property for semiconductor electronic design automation and these IPs are now licensed by other companies, making SNPS a strong link in the AI semiconductor chain. Synopsys has expanded beyond its traditional silicon design business with the acquisition of Ansys, adding multi-physics simulation capabilities to its portfolio.
Synopsys generates most of its revenue from recurring sources, which made up 83% of total revenues in the second quarter of fiscal 2026. The Zacks Consensus Estimate for the SNPS’ fiscal 2026 revenues is pegged at $9.69 billion, suggesting year-over-year growth of 14.3%. The estimate for fiscal 2026 earnings implies year-over-year growth of 37.4%, which has remained unchanged over the past 30 days.
Image Source: Zacks Investment Research
The Case for Applied Digital Stock
Applied Digital is building its next growth phase around power infrastructure, which is becoming an increasingly important factor in AI data center deployment. As hyperscalers continue expanding AI workloads, access to reliable and scalable power is expected to play a larger role in data center site selection. APLD's strategy of securing utility-connected power capacity and developing campuses in energy-abundant regions could strengthen its position in the rapidly growing AI infrastructure market.
The company's North Dakota campuses are expected to provide a competitive advantage through access to low-cost grid power, favorable cooling conditions and an established operating footprint. These factors may help APLD offer customers long-term efficiency benefits while supporting the economics of multi-year hyperscale leases. The company already has 1.2 gigawatts of critical IT capacity under contract and is actively marketing additional development sites with more than 3.5 gigawatts of utility-connected power capacity. As AI infrastructure demand rises, these assets could support future leasing activity and expand APLD's revenue base.
However, customer concentration remains elevated despite continued efforts to diversify its hyperscale customer base. APLD has expanded its development pipeline and is actively pursuing additional leasing opportunities, but contracted revenues remain heavily concentrated among a limited number of customers, creating an ongoing risk to long-term revenue visibility.
The concentration remains significant. Of the company's approximately $36 billion in total contracted lease revenues, $11 billion is attributable to CoreWeave, while a separate hyperscaler anchors Delta Forge 1, Polaris Forge 3 and Delta Forge 2 and accounts for $20 billion. The remaining $5 billion is tied to a third hyperscaler at Polaris Forge 2. Together, just two customers represent close to 90% of total contracted revenues.
Applied Digital also works on a capex-heavy business model, which is keeping its bottom-line growth modest. The Zacks Consensus Estimate for APLD's fiscal 2026 revenues is pegged at $395 million, suggesting year-over-year growth of 83.5%. The estimate for fiscal 2026 earnings implies modest year-over-year growth of 15.2%, which has been revised downward in the past 30 days.
Image Source: Zacks Investment Research
SNPS vs. APLD: Price Performance & Valuation Check
Synopsys shares have lost 1.3% in the past year, while shares of Applied Digital have soared 358%.
Past One-Year Performance Chart
Image Source: Zacks Investment Research
On the valuation front, Applied Digital trades at a forward 12-month price-to-sales (P/S) multiple of 16.48 above its one-year median of 16.28x, while Synopsys’ 8.62x trades below its one-year median of 9.11x.
Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
Conclusion: SNPS vs APLD
While both Synopsys and Applied Digital are positioned to benefit from the ongoing AI infrastructure boom, Synopsys appears to be the stronger investment choice based on the quality, durability and profitability of its growth. Applied Digital remains highly capital-intensive, relies on a small number of hyperscale customers and carries greater execution risk as it continues building out data center infrastructure. Given these factors, we suggest SNPS to be a safer choice over APLD stock. SNPS carries a Zacks Rank #2 (Buy), while APLD has a Zacks Rank #5 (Sell) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Synopsys, Inc. (SNPS): Free Stock Analysis Report
Applied Digital Corporation (APLD): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).